A personal loan continues to rank among the most popular borrowing options because they offer tremendous flexibility. Because lenders place few restrictions on it's use, savvy borrowers can put a personal loan to good use in reaching their financial goals. If you would like to improve your quality of life, professional or financial goals, these are ways a personal loan can help.
What is a Personal Loan?
A personal loan is a borrowing option that typically provides relatively quick approvals for qualified applicants and offers a fixed interest rate with a static monthly payment. Lenders offer personal loans that can be used for a variety of purposes. People are often attracted to personal loans because they can be used to pay for a wedding, family vacation, a boat, installing a pool, and other leisure expenses. But by that same token, a personal loan can be strategically employed to further your personal and professional goals.
Smart Ways to Use a Personal Loan
In many cases, a personal loan is generally viewed by people as means to obtain quick cash for a want or need that they don’t have the funds for. In other cases, people prefer to borrow money rather than reduce their savings accounts. And for some, a personal loan is seen as a vehicle to improve their financial health. These are smart ways to use a personal loan to improve your financial health.
1: Debt Consolidation
Using a personal loan as a tool to consolidate and reduce debt is one of the smartest ways to use a personal loan. Sometimes called a “debt consolidation loan,” people who are struggling with multiple high-interest loans and credit card balances use the low-interest personal loan to combine and pay off these accounts. This move immediately reduces outgoing monthly expenses and positions borrowers to eliminate debt faster. However, it's important to note that one should not to rack up more high-interest debt while in the personal loan repayment process.
2: Credit Score Improvement
When making consistent payments in full each month, a personal loan can increase and maintain your credit score by building a positive repayment history and diversifying your credit mix. Your payment history makes up the largest part of your FICO score (at 35 percent) so making regular payments is a sure-fire way to improve your creditworthiness over time.
3: Business Investment
Because local lenders offer flexible use of personal loans, entrepreneurs and company leaders can use them to further business goals. For example, a cash-strapped small business could invest in new equipment or inventory to increase sales and services ahead of seasonal peaks.
By calculating the interest on a personal loan, savvy entrepreneurs can do the math and make an informed decision about borrowing. If the increased sales and profits are worth taking out a personal loan, the move could grow your enterprise.
4: Further Education
Ranked among the more popular applications for a personal loan, getting a degree, certificate, or paying for career training can be a great professional investment. Although lenders are generally open to using a personal loan to pay for a variety of educational purposes, consider how truck drivers use them.
Tractor-trailer schools typically cost $10,000 or less. People who earn their Commercial Driver’s License (CDL) promptly enter a career that pays between $40,000 and $80,000. Turning a $10,000 personal loan into an annual salary four to eight times higher is certainly a smart investment.
5: Medical Expenses
Not everyone can afford the high cost of health insurance. And those with coverage often incur high deductibles that get in the way of treatment. But without good health, your quality of life can be greatly diminished. That’s why many people apply for a personal loan when they need expensive procedures or unexpectedly incur medical expenses. There’s no smarter use of a personal loan than investing in your health, well-being, and quality of life.
Important Rules About Using a Personal Loan
When used smartly, the benefits of a personal loan can be life-altering. By that same token, not every borrower conducts thorough due diligence or plans for seamless repayment. If a personal loan appears to be the right solution for you, these are things to consider.
1: Shop Around for the Best Rate
Lenders roll out marketing campaigns as a means to entice borrowers to apply for their products. Although persuasive, big banks can't always provide the low interest rates offered by local credit unions. That’s because credit unions are not-for-profit organizations. Their profits earned above expenses are returned to their members in the form of lower fees, lower loan rates, and higher earnings on savings accounts.
2: Check for Fees
Fees are often the “hidden” cost of taking out a personal loan. Consider conducting research from different lenders and add up all the fees that accompany a personal loan. You may find it’s more cost-effective to go with a local credit union that offers little or no fees for personal loans.
3: Budget Before You Borrow
Using a personal loan to improve your creditworthiness requires consistent, on-time, and full payments. If you can’t fit the cost of a personal loan into your current monthly budget, consider reaching out to a local credit union and getting financial planning advice. There are professionals there who can help educate you about money management and the strategic use of personal loans.
4: Calculate the Total Cost of Your Loan
It’s essential to see the forest through the trees, so to speak. That means understanding the full amount you will repay when taking out a personal loan. Consider using a personal loan calculator to compare total repayment amounts. You can enter the principal, interest rate, number of months for repayment, as well as any associated fees. A personal loan calculator is a great tool to help you make the right financial choice for your budget!
5: Make On-Time Payments
The importance of making on-time payments cannot be overstated. Responsible repayment buoys credit scores and helps borrowers position themselves for future lending opportunities such as lower rates or better terms, and other enhanced benefits.
Getting a Personal Loan is a Breeze with Peach State
A personal loan is a versatile financial tool that offers people the flexibility to borrow money based on their specific financial needs and goals. Successfully repaying a personal loan can contribute to building or improving one's credit score, opening up the potential for better borrowing opportunities and financial stability. Peach State is here to help! If you have any questions, please contact Peach State today!